Trading support/resistance overlap zones

As traders, our job is not to predict the future, but to spot low-risk opportunities (particularly at visual inflection points) and manage open positions in real-time as new information appears each day on the price chart. A common low-risk trading strategy is taking advantage of trend line support or resistance level overlap areas. When prices break above an established declining trend line resistance level, this level usually becomes new support on a pullback. Buying on this new support level in anticipation of a rebound provides an ideal risk/reward entry with a stop-loss just below the support area in case support fails and prices break down. Below we will have a look at a declining trend line that was acting as resistance become a support zone for a rebound.

ADAPTED OPTION STRATEGY: BULL CALL SPREAD

As the upside potential is limited by the 2404 resistance level, a bull spread allows you to lower the cost of the strategy (in comparison to a straight long call) by selling a call out of the money. As a result, the strategy consists of the simultaneous purchase of a call with a Strike at 2360 and selling a call with a Strike at 2405 (slightly above the target resistance level).

Bull Call Spread: Leg 1

Trading Symbol

ES M7

Option Type

CALL

Option Strategy

BUY

Strike

2360

Expiration

June 2017

Bull Call Spread: Leg 2

Trading Symbol

ES M7

Option Type

CALL

Option Strategy

SELL

Strike

2405

Expiration

June 2017

ADAPTIVE FUTURES STRATEGY

Trading Symbol

ES M7

Strategy

BUY

Entry Point

2363.75

Target

2404

Stop Loss

2344

Contract Expiry

June 2017

TRADING SUPPORT/RESISTANCE OVERLAP ZONES: ES ON MAY 18TH 2017

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 2404 is calculated by using the next major resistance level or significant recent high.

POTENTIAL DOWNSIDE PER CONTRACT

If the price fails to gather upside momentum and breaks below the 2344 stop-loss, the position is closed.

Support and resistance zone overlaps happening now

PA

ZL

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